Which Forex Trader Are You
Which Forex Trader Are You?
What characteristics distinguish a good trader from a great one? Guts, instincts, intelligence, and, most crucially, timing are all important factors. There are numerous various time frames that help traders develop their ideas and execute their tactics, just as there are many different types of traders. At the same time, timing allows market fighters to account for a number of factors that are beyond their control. Position leverage, the subtleties of different currency pairs, and the effects of scheduled and unscheduled news releases in the market are just a few of these topics. As a result, timing is always a big concern when trading foreign exchange, and it is a crucial component that new traders nearly always overlook.
Time Frames Used By A Trader
In the big scheme of things, merchants go by a variety of titles and classifications. When time is taken into account, however, traders and methods tend to fall into three categories: day traders, swing traders, and position traders.
The Day Trader
Let’s start with the day trader, which appears to be the most enticing of the three classifications. For lack of a better term, a day trader will trade only for the day. These are market participants that typically do not hold anything after the session closes and trade in big volumes.
On an intraday time frame, day traders also make frequent trades. While day traders’ routines are not as fast-paced as scalpers’, they will close all positions before the conclusion of the trading day to avoid holding any overnight. This ensures that deals are unaffected by negative news that may impact prices before or after the market starts.
To be a successful day trader, you must be able to adjust to rapid price swings and be aware of tactics specific to this kind of trading, such as fading the gap.
The Swing Trader
Swing traders hold trades for a longer period of time than day traders, often up to a number of weeks. Swing traders would often prefer technical analysis to fundamental analysis during this short timeframe, though they should still be aware of news developments that can cause volatility.
This trader type is less frenzied than scalpers and day traders, so excessive vigilance isn’t required. However, when it comes to chart analysis, you’ll still need a keen eye for detail.
The Position Trader
Position traders hold trades for a longer period of time, ranging from a few weeks to several years. Position traders, with the longest holding period of any trading technique, are less concerned with an asset’s short-term price volatility and more concerned, naturally, with its performance over longer timeframes.
As a forex position trader, you’ll need patience because your money will be tied up for extended periods of time. A good understanding of fundamental issues is beneficial, especially with longer-term trading, thus strong analytical abilities will come in handy.
The Algorithmic Trader
Algorithmic traders use computer algorithms to place transactions on their behalf at the best possible price. Traders can either create their own programs or buy pre-made ones using specific instructions or high-frequency trading algorithms.
This form of trading is ideal for those who are comfortable with technology and wish to incorporate it into their forex business. Algorithmic traders will have a great eye for technical charts due to the nature of the programs.
The Event-driven Trader
Fundamental analysis, rather than technical charts, is used by event-driven traders to make judgments. They’ll look for opportunities to profit on surges in political or economic data, such as Non-Farm Payroll data, GDP, employment figures, and elections.
This form of trading is best for someone who enjoys keeping up with current events and understands how they affect markets. You’ll be skilled at processing new information and forecasting how global and localized events will play out if you’re inquisitive, inquiring, and forward-thinking.
Additional Points To Consider
With five different types of traders, there are various different criteria that lead to success in each of these categories. Knowing the time frame alone isn’t sufficient. Every trader should be aware of several fundamental aspects that affect traders on a personal basis.
The Leverage
Leverage is a day trader’s best friend, despite its reputation as a double-edged sword. A trader without leverage is like a fisherman without a fishing pole when it comes to the currency market’s very tiny movements. In other words, if a professional lacks the necessary tools, he or she will be unable to capitalize on a given chance. As a result, before engaging in any deal, a day trader will always examine how much leverage or risk they are ready to take on.
A swing trader may consider his or her risk parameters in the same way. Although swing traders’ positions are sometimes intended for longer-term swings, they may have to experience some pain before generating a profit on a transaction. Notice how there are multiple points in the downtrend where a swing trader might have profited from the Australian dollar/US dollar currency pair in the example below (Figure 3). A swing strategy would have attempted to enter the market at points surrounding each golden cross if the slow stochastic oscillator had been added.
However, the trader would have had to endure considerable losses over the course of two to three days before the real market move could be correctly predicted. Without a competent risk assessment, magnifying these losses with leverage would result in a calamitous profit/loss.
Various Currency Pairs
Currency pair volatility should be taken into account in addition to leverage. It’s one thing to know how much you could lose every deal; it’s another to know how quickly your trade could lose. As a result, various time frames will need the use of different currency combinations. Knowing that the British pound/Japanese yen currency cross can move 100 pips in an hour can be a difficult challenge for day traders, but it may not make sense for swing traders looking to profit from a market shift. Swing traders will prefer to monitor more well-known G7 major pairs for this reason alone since they tend to be more liquid than emerging markets and cross currencies. Because of this, the euro/US dollar is preferred over the Australian dollar/Japanese yen.
News Releases
Finally, all three types of traders must be aware of both unplanned and scheduled news releases, as well as how they affect the market. Traders in all three groups will have to make individual adjustments to these releases, whether they are economic pronouncements, central bank news conferences, or the occasional surprise rate decision.
Short-term traders will be the hardest hit, as losses will be amplified, while swing traders’ directional bias will be tainted. As a result, some market participants will prefer the convenience of being a position trader. The position trader is partially filtered by these occurrences because they have already anticipated the temporary price disruption. With a longer-term perspective and perhaps a more comprehensive portfolio, the position trader is somewhat filtered by these occurrences. Position traders are somewhat protected as they look ahead to their benchmark targets as long as the price continues to conform to the longer-term outlook.
The U.S. non-farm payrolls data, released on the first Friday of every month, is an excellent example of this. Although short-term traders must cope with choppy and turbulent trading after each release, the longer-term position trader is relatively safe as long as the longer-term bias is maintained.
Which Time Frame Is Most Appropriate?
Which time window is best relies entirely on the trader. Do you thrive in currency pairs with high volatility? Or do you have other obligations and prefer the safe, long-term profits of a position trade? Fortunately, you don’t have to fit into one of these categories.
Like A Position Trader
As a position trader, the first thing you should look at is the economy—in this example, the economy of the United Kingdom. Assume that, in light of global conditions, the United Kingdom’s economy will continue to deteriorate in accordance with that of other countries. Manufacturing and industrial production are on the decline, as consumer mood and spending continue to fall. The fact that policymakers continue to use benchmark interest rates to encourage liquidity and consumption has aggravated the problem, causing the currency to fall in value because lower interest rates imply cheaper money.
Like A Day Trader
We isolate intraday chances that allow us the ability to sell into this trend through simple technical analysis after establishing the long-term trend, which in this case is a continued deleveraging, or sell off, of the British pound (support and resistance). Looking for outstanding short chances at the London open after the price movement has varied from the Asian session is a good technique for this.
Although it may seem too simple to believe, this technique is sometimes disregarded when developing more complex plans. When traders enter the market, they tend to focus on the long term picture rather than gauging their risk, resulting in them taking on more risk than they should. Bringing the activity to the short-term charts not only allows us to observe what is going on but also allows us to avoid lengthier and unneeded drawdowns.
Final Thoughts
Any trader understands the importance of time periods. Time frames are always a vital aspect in an individual’s strategy and implementation, whether you’re a day, swing, or position trader. The understanding of time in trading and execution, given its considerations and precautions, can assist any rookie trader in achieving greatness.
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